Markets
Global core bonds edged higher today with US Treasuries outperforming German Bunds. Risk sentiment was largely positive across Asia but failed to continue at the European opening. Core bonds profited and traded near all-time highs. Given the ongoing uncertainties, financial markets remain fragile. The EMU economic confidence surprised on the upside and was able to brighten up the tone of the day. German Bunds paired some of its intraday gains. The German yield curve is mixed with changes in the range of -0.9 bps (10-yr) and +0.5 bps (2-yr). US Treasuries behaved similar to German Bunds and paired part of its early-day gains before lunch. With US investors re-joining the debates after the long weekend, core bonds resumed the upward trend again. Investors awaited the US Conf. Board Consumer Confidence for May, which is expected to improve marginally. At the time of writing, the US yield curve is moving lower with yield changes up to-3.5 bps (10-yr). The US 10-year yield sinks to the lowest level since 2017. Italian BTP’s declined further as investors are still digesting the new Italian standoff with the EU. European Commissioner Pierre Moscovici eased tensions somewhat by saying that he’s not in favor of new sanctions for Italy. Peripheral spreads over the German 10-year yield are rather stable with Greece (+3 bps) and Italy (+3 bps) underperforming.
(FX) trading gradually regained traction today after a long weekend in the US and the UK. Risk sentiment was constructive in Asia, but European markets failed to join this momentum. Core yields, equites and, to a lesser extent, the euro soon turned south. Lingering uncertainty on global trade and headlines of potential new conflicts between the EU and Italy were probably to blame. EUR/USD slipped to the 1.1180 area. EMU Monetary data and EC confidence statistics printed better than expected, but markets were not impressed. A shy EUR/USD rebound ran into resistance ahead of the 1.12 big figure. Risk sentiment tentatively improved going into the start of the US trading session. In technical trade EUR/USD, USD/JPY and EUR/JPY all tried to make some headway. Still, trading was confined to tight ranges as investors await more decisive news to consider a real directional move. EUR/USD is trading just below the 1.12 level. USD/JPY is changing hands in the 109.50 area.
Sterling is still paralyzed by the political stalemate in the UK. Candidates are lining up for the battle to succeed Theresa May. Top conservative party members are divided whether a no-deal Brexit is to be favored. For now, it is still the most likely scenario for a hardline Brexiteer to become the next UK PM. This uncertainty is keeping sterling in the defensive. The UK currency is holding near recent lows against the euro (EUR/GBP 0.8830/40 area) and the dollar (cable in the higher half of 1.26 area). However, for now there is no concrete enough news for a new trend move. UK mortgage lending picked up sharply in April, but this wasn’t enough to change fortunes for sterling.
News Headlines
EMU M3 money supply growth accelerated to 4.7% in April, coming from 4.6% in March, ECB data showed. The annual growth rate of loans to euro area households increased marginally to 3.4% while lending to businesses ticked up from 3.6% in March to 3.9% last month. Large intra EMU differences persist (Germany/France – Italy/Spain).
David Mabuza is set to be re-appointed as deputy president of South-Africa after the ruling African National Congress said he would be appointed as a lawmaker. As Mabuza was linked to a series of scandals, markets consider his re-appointment a blow to president Ramaphosa’s drive to clear the party from corruption. The South-African rand loses about 1.3%.
